Hong Kong Struggles Back Into Economic Growth

by Mary Swire, Tax-News.com, Hong Kong

02 September 2002

Improving levels of trade helped Hong Kong to return to economic growth in the second quarter of the year, although domestic demand continued to be sluggish. The SAR's GDP increased by 0.5% in real terms in the second quarter of 2002, up from a 0.5% decrease in the first quarter. On a seasonally adjusted quarter-to-quarter comparison, GDP continued to rise, by 0.4% in real terms in the second quarter of 2002, having gone up by 0.2% in the first quarter.

Externally, exports of both goods and services performed better in the second quarter of 2002. On the back of firmer regional demand and more recently also improved external price competitiveness from a weaker US dollar, total exports of goods reverted to increase at 5.9% in real terms in the second quarter of 2002 over a year earlier, having declined for four consecutive quarters. Exports of services had a further notable rise of 8.6% in real terms in the second quarter of 2002 over a year earlier, bolstered by significant leaps in inbound tourism and offshore trade.

But locally, consumer spending was restrained by the unemployment hike and moderating wages, falling by 2.4% in real terms in the second quarter of 2002 from a year earlier. Investment spending remained weak, and fell by 1.7% in real terms in the second quarter of 2002 from a year earlier. Machinery and equipment intake was held back by subdued business climate and an overhang of excess capacity, which more than offset a moderate increase in building and construction output upon intensification of work on some major projects. There was a moderate replenishment of inventories in the second quarter of 2002.

The seasonally adjusted unemployment rate went up from 7.0% in the first quarter of 2002 to 7.7% in the second quarter (then further to a new high of 7.8% in the three months ending July). The underemployment rate nevertheless came down between these two quarters, from 3.2% to 2.9% (then further to 2.8% in the three months ending July).

The Government said that Hong Kong's exports of both goods and services should continue to benefit from the pick-up in regional demand, in particular demand in the mainland of China. Also, the recent distinct weakening in the US dollar should help lift Hong Kong's exports in the coming months. But the near-term outlook for the domestic economy remains bleak. Consumers may still be less willing to spend, while companies may continue to hold back on their investment plans.

The Government's forecast growth rate in real terms of GDP for 2002 is now put at 1.5%, half of a percentage point up from the earlier update. On the whole, the pick-up in external demand is envisaged to be largely offset by the sluggish domestic demand. As to the quarterly profile, a continuing uptrend is envisaged for the year, benefiting at least in part from a lower base of comparison in the second half of last year.

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